Taxand: Strong M&A activity forecast for H2 after fast start to 2021
Taxand, the world’s largest organisation of independent tax advisory firms, has published its 2021 Global Guide to M&A Tax providing insights into the tax treatment of mergers and acquisitions across 30 countries, including commentary with respect to recent developments and Covid measures relevant to deals.
Frederic Donnedieu de Vabres, chairman of Taxand, said: “Despite all the challenges posed by a tumultuous 18 months, dealmakers can be optimistic heading into H2. After the strongest M&A performance in 5 years in Q4 2020, we have continued to see impressive levels of transaction activity in H1 2021. These figures will undoubtedly reinforce market confidence that the combination of economic stimulus measures, Private Equity “dry powder” and the increase in momentum of Covid vaccinations, to name a few key factors, are fostering not only stability, but are encouraging sustained transaction volumes.
“Government measures to support businesses and manage the challenges posed by the pandemic have had an impact on the M&A market and the world of tax, and following the G20 meetings in Vienna, we await with interest the outcome of the so called “Made in America” plans, including the proposed global minimum tax. As a business owner and a tax practitioner I hope for further clarity from the ongoing international discussions.
“It remains to be seen whether the M&A market can sustain its current positive momentum through to the end of 2021 and beyond, but in a changing environment it’s important for businesses to be able to adapt and evolve in order to grow. At Taxand we apply our expertise to partner with our clients with this in mind, and I am delighted we are able to produce and share reference Guides such as this which provide insights on current rules and useful updates on recent changes.”
Commenting on the guide, James Stanley, Alvarez and Marsal managing director, and head of the Taxand M&A Tax Service Line said: “The release of the Global Guide could not have come at a better time. The first half of 2021 has turned out to be record breaking, with more deal volume and announcements than any other H1 on record. What has spurred the flurry of activity? There are several factors contributing to making the first six months of 2021 the most robust on record for deals: historically low interest rates; pent up deal demand from a global pandemic lockdown; PE dry powder in excess of $1.6tn (and corporate cash at record levels); US elections being out of the way; taking advantage of post-pandemic opportunistic plays in areas such as technology, media, and health-care; and accelerating deal activity due to the Biden administration’s tax raising goals.
“The Global Guide is a resource to help those involved in the deal process become “smarter” in short order in the areas of tax diligence, structuring, and integration – including request lists and treaty tables by country. Finally, it contains the latest updates around Covid and local country tax legislation.”
A global perspective
Below is new key insight on in-market M&A activity from a selection of Taxand’s global network:
INDIA
Rohit Jain, senior partner & co-head tax, economic laws practice, said: “Over the past few years, M&A activity has been rising in India due to need for growth capital, rise of next-gen professional promoters, expansion of various categories of investors, growth of start-up culture and re-organisation of businesses to improve efficiency. M&A is currently trending towards greater competition for premium assets. Ferocious demand for growth and restructuring is creating an urgency to win at almost any cost. The speed of deal making has also increased. Such increased M&A activity has amplified tax risks and has led to introduction of several measures against tax mitigation.
“Taxand’s global network capabilities span the M&A transaction lifecycle, from advisory and execution planning to implementation and integration and cater to client’s needs. Taxand guide to M&A tax is a compendium covering key tax and regulatory aspects impacting deals on a worldwide scale. It outlines jurisdiction-wise key tax & regulatory considerations as well as recently introduced & upcoming regulations impacting deals which should be examined. Taxand India has been in forefront for structuring of inbound, outbound, global as well as domestic M&A deals cost-effectively.”
IRELAND
Sonya Manzor, head of tax at William Fry, said: “Despite the volatile economic climate in the last 18 months, the Irish M&A market’s performance in 2020 was very strong, matching 2019 deal activity by volume and exceeding it by value by 14%. Increased private equity activity in the Irish market was a notable trend in 2020. 13 of the top 20 deals of the year had PE involvement – an impressive performance given the challenges dealmakers faced in 2020.
“As dealmakers plan for the second half of 2021, there are signs that the era of extreme uncertainty is drawing to a much needed close. The gradual global economic recovery from the COVID-19 crisis, coupled with greater geopolitical stability in the form of the UK-EU trade deal, has provided the backdrop for an even more confident Irish M&A market moving through 2021.”
LUXEMBOURG
Olivier Remacle, tax partner, ATOZ Tax Advisers said: “Over the past two years, Luxembourg has been implementing many tax reforms as part of its commitment to keep its tax system in line with the latest international standards to prevent base erosion and profit shifting (“BEPS”) and has brought its exchange of information provisions up to the next level with new rules on the mandatory disclosure of cross-border arrangements. Since the very beginning of the Covid-19 crisis, the Luxembourg government has been taking several measures to guarantee the continuity of the Luxembourg economy. Today, Luxembourg remains a preferred jurisdiction for institutional and private investors, including hedge funds and private equity investors, and is ranked as the second largest global fund centre. After having experienced the effects of global volatility in March 2020 (with total net assets of regulated Luxembourg investment funds dropping down by 11.11% in one month), since April 2020, the total net assets of Luxembourg regulated investment funds has been increasing continuously (+ 5.40% in 2020 and +7.20% over the first 5 months of 2021) to reach EUR 5,332.392 bn. by the end of May 2021.”
SOUTH AFRICA
Robert Gad, executive, ENSafrica, said: “As in many jurisdictions, Covid-19 has slowed down the M&A market in South Africa. Despite this dip in pace, there continues to be significant activity in private equity, fintech, telecoms, retail, healthcare and pharmaceuticals, as well as restructuring state-owned entities, mineral resources, alternative energy and financial services in general.
“While some clients have needed to downscale and sell off distressed assets, others have taken advantage of current market conditions by making strategic acquisitions.
“As always, tax efficiency, compliance and complexity are priority considerations in M&A deals, particularly since the South African Revenue Service is expected to focus on enforcement to bolster revenue. With significant expertise in M&A deals as well as tax dispute resolution, Taxand’s global network of independent advisors is perfectly positioned to provide comprehensive, practical M&A advisory services for both local and cross-border deals.”
SPAIN
Francisco Lavandera, partner at Garrigues below: “Taxes are a pivotal element of any M&A transaction. The intricacies always inherent in the application and interpretation of the tax laws have exacerbated in recent times, due to the implementation of a plethora of complex tax regulations and innovative (and often “aggressive”) approaches by the tax authorities. Spain (as most EU countries) has experienced a rapid process of incorporation into its tax system of new international standards and rules, primarily aimed at tackling abuse, improving transparency and ensuring compliance. A new paradigm has been introduced in the management of tax affairs, that requires practitioners to have a global and holistic approach, not limiting our focus to the domestic field but also expanding it to other geographies: regulations such as DAC6 or ATAD2 oblige us to understand the full picture and figure out how taxes interact across different jurisdictions. The M&A sector is a perfect example of how important this is, especially in the context of deals with an international element. This Taxand M&A Guide is an excellent tool (and a perfect starting point) for investors to have a global view of the main tax drivers to bear in mind in the various countries, subject (needless to say) to receiving the proper tax advice across the entire process.”
